This watchdog blog, by journalist Norman Oder, offers analysis, commentary, and reportage about the $4.9 billion project to build the Barclays Center arena and 16 high-rise buildings at a crucial site in Brooklyn. Dubbed Atlantic Yards by developer Forest City Ratner in 2003, it was rebranded Pacific Park in 2014 after the Chinese government-owned Greenland Group bought a 70% stake in 15 towers. New York State still calls it Atlantic Yards. Contact: AtlanticYardsReport[at]hotmail.com

I agree the arena is doing far, far worse than predicted, though I can't be that definitive.

After losses in one year, the arena should--if it finally meets predictions--be able to cover financing costs, including the second tranche of financing (from then-minority owner Mikhail Prokhorov) beyond the tax-exempt arena bonds. But profits will continue to lag enormously.

The year 2014-15 was a very bad year after a not so good year, and the arena operating company is doing far worse than predicted. The $38 million in net operating income (NOI) was not enough to cover the $47 million combination of bond repayments (with required cushion) plus additional financing.

The previous year NOI reached $46 million, enough to cover payments of $45 million. And even if you accept Forest City Ratner's claim that the second tranche of financing shouldn't count, they're way behind predictions.

Going forward

I do think finances should improve somewhat with the arrival of the New York Islanders, though it's questionable whether the NOI will stabilize this year at the $55 million parent Forest City Enterprises predicted (after dialing back from $83 million in the bond documents, then $70 million and $65 million).

That $55 million should cover interest payments, at least for a while. (The tax-exempt bond debt service keeps rising, until 2038.) But the entire deal now should be reassessed.

Now that Prokhorov owns the entire arena company, it seems that both the nominal arena valuation ($825 million, below book value) and the extant debt reflects his relatively small outlay of $285 million for 55% of the arena and 20% of the Brooklyn Nets: $71.25 million in cash and notes worth $213.75 million.

Yes, Forest City Ratner disputes my framing, and yes, the transaction described in the paragraph above deserves to be unpacked further.

And the move to Brooklyn, plus new national TV deals and a revamped payroll, should finally drive profits on Prokhorov's Brooklyn Nets, after years of losses.

The bottom line

Still, it seems obvious that the arena never drove the profit developer Bruce Ratner (and ratings agencies) long predicted. To quote a May 2011 Ratner profile in the Real Deal:

He estimated the arena will generate annual net income of about $110 million to $120 million, cost $30 million to operate, and require about $45 million to $50 million a year to pay off financing, leaving the company with about $35 million a year in profit.

As the screenshot above shows, the annual income--gross, not net--did reach the range of $110-$120 million, and financing expenses were in the $45-$50 million range. (In other words, that encompasses the value of both the tax-exempt bonds and the Prokhorov loan.) But operating expenses have been much higher, and profits thus diminished or non-existent.